November 25, 2011

Edeka steps back from C1000 deal

Edeka logo (photo: Lars Krüger)
Edeka logo: You can see it virtually everywhere in Germany, but nowhere else in Europe
In a very fast move, smacking a little of desperation, Jumbo Group clinched the purchase of fellow Dutch supermarket retailer C1000 yesterday.

Multiple-cum-independent-franchise operator Jumbo paid €900m for 423 "C1000" stores making the combined company the second-largest food retailer in the Netherlands after Ahold-subsidiary Albert Heijn.

Pending cartel office approval early next year, Jumbo's store base will grow to 725 outlets with annual retail revenues of around €7.5bn. Combined market share will now be 23 per cent compared with Albert Heijn's immense 34 per cent.

C1000 already co-operates with Jumbo via Bijeen, a joint buying alliance created last year. Bijeen is now the third-largest purchasing group in the country after Albert Heijn and Superunie.

So Dutch retailing has now become a two-horse cart race between market leader Albert Heijn and Jumbo/C1000.

A challenger for Albert Heijn

"The merger is a clear improvement on current market conditions in the Netherlands because, at last, Albert Heijn has a serious challenger," comments Dutch retail expert Pascal Kuipers.

Although Germany's largest food retailer Edeka-Gruppe never officially confirmed that it had placed a bid for C1000, it seems clear that the Hamburg-based independent retailer was not prepared to pay more than an estimated €800m ($1.1bn) for C1000.

This sum was €100m ($132m) below the price Jumbo has paid to C1000's private-equity owners CVC Capital Partners. (Jumbo has had to draw on Rabobank, ING Bank and ABN Amro to finance the deal.)

There were also independent retail members within Edeka who indicated to Lebensmittel Zeitung, strictly off-the record, that they were not entirely clear as to the advantages and synergies which would accrue from any large foreign takeover.

Costly foreign flops

To an extent this is understandable given the lack of traction on prior attempts by Edeka's regional subsidiary companies to internationalise: Denmark (1991-2010), the Czech Republic (1991-2006), the Netherlands (1996-2001), France (1996-2003), Poland (1997-2000), Austria (1998-2007) and Russia (2001-2006).

However, not clinching the C1000 deal leaves Edeka a vast, but purely German force. Last year, the retail giant with its 12,000 supermarkets, discount stores, neighbourhood stores and hypermarkets posted net revenues of €43.5bn.

According to TradeDimensions, this gives the company a whopping 20 per cent of the German food market. Thus, any further major acquisition on Edeka's home turf is extremely unlikely for cartel reasons.

Meanwhile, all Edeka's major competitors have long gone international and now achieve a high proportion of annual revenues abroad: Schwarz Group's Lidl (66 per cent) and Kaufland (30 per cent), Metro Group (61. per cent), Aldi North (57 per cent) and Aldi South (55 percent), Rewe Group (31 per cent).

Quo vadis now Edeka?


Related article in German: Lebensmittel Zeitung, no. 47, 25.11.2011, by Jan Mende


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